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Current Account Deficit Widens

India’s current account deficit (CAD) increased to $10.1 billion (2.1 per cent of GDP) in the second quarter of this fiscal from $7.8 billion (1.7 per cent of GDP) in the preceding quarter and $5.2 billion (1.2 per cent of GDP) in the same quarter of 2013-14.

According to data released by RBI, CAD rose sharply on account of higher trade deficit contributed by both a deceleration in export growth and an increase in gold imports. The increase in CAD was primarily on account of higher trade deficit, contributed by a deceleration in export growth and increase in imports.

According to the RBI report, net flows through foreign direct investment were stable; however, portfolio investment recorded inflows of $9.8 billion as against an outflow of $6.6 billion in the second quarter of 2013-14.

The Union government eased gold imports last month by removing a restriction that required traders to export 20% of the precious metal they bought overseas—a move that had been aimed at cutting the CAD.

Lower CAD and rise in flows under financial account resulted in an accretion to India’s foreign exchange reserve to the tune of $18.1 billion in the first half of 2014-15 as against a draw down of $10.7 billion in the first half of 2013-14.

Source Hindu and Livemint